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Catch-up strategies and the latecomer effect in industrial development

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New Political Economy, Vol. 11, No. 3, September 2006

Catch-up Strategies and the Latecomer

Effect in Industrial Development
JOHN A. MATHEWS

Scholarly attention to the issue of world industrial development now spans at least
60 years – if we go back just to debates over the ‘Big Push’ of Paul Rosenstein-
Rodan or to the strategy of construction of forward and backward linkages
as emphasised by Albert Hirschman.1 The great Russian economic historian,
Alexander Gerschenkron, outlined an approach to development based on
capturing the ‘latecomer effect’ in the 1950s.2 My purpose in this article is to
provide a review of development debates and concepts – such as forward and
backward linkages – that is informed by strategising concepts in the modern
business literature, as well as by the experiences of development over the past
25 years that post-date these early intellectual contributions.
Strategies have a goal or purpose, and the principal purpose of development is to
close the gap between the advanced and what Gerschenkron called the ‘backward’
countries. Various institutional and strategic measures have been devised by success-
ful developing countries, permitting some of them – such as those from East Asia – to
break into the ranks of relatively advanced countries. The issue is to what extent these
institutions and strategies that worked in the post-war period will be expected to work,
with suitable modification for new conditions, in the current period. To what extent do
the great debates over economic development, which took place 50 and 60 years ago,
remain relevant to the task today? To what extent do the hypotheses concerning late-
comer development, formulated by Gerschenkron in 1952 for the case of latecomer
countries in Europe industrialising in the 19th century, remain relevant to the needs
of African or Latin American or Central Asian countries today? These are the
issues addressed in this article.
The situation facing countries and firms that arrive late on the industrial scene is
one that combines apparently hopeless drawbacks, difficulties and inadequacies
with advantages that flow precisely from being ‘late’ and not having to go
through all the previous steps that incumbents had to endure. It is convenient to
call firms in this position ‘latecomers’ – extending the usage introduced by
Gerschenkron to the case of firms.3
Latecomer firms, like latecomer nations, are able to exploit their late arrival to tap
into advanced technologies, rather than having to replicate the entire previous

John A. Mathews, Macquarie Graduate School of Management, Macquarie University, Sydney

NSW 2109, Australia.

ISSN 1356-3467 print; ISSN 1469-9923 online=06=030313-23 # 2006 Taylor & Francis
DOI: 10.1080=13563460600840142
 John A. Mathews

technological trajectory. They can accelerate their uptake and learning efforts
utilising various forms of collaborative processes and state agencies to assist with
the process, and bypassing some of the organisational inertia that holds back
their more established competitors. They therefore strategise around the possibi-
lities inherent in their latecomer status. The strategic goal of the latecomer is
clear: it is to raise real incomes through catching up with the advanced firms, and
to move as quickly as possible from imitation to innovation – the phrase made
famous by the late Lin-su Kim.4 The notion of ‘latecomer firm’ is couched in
general terms, but it can be seen to include examples of firms from East Asia, as
well as examples from other developing countries, present and future.
In the context of globalisation, latecomer firms are faced with new opportunities
for linking up with emergent institutions and networks. Global value chains, for
example, are being formed by leading firms in the advanced countries, as they
seek to cut costs and enhance flexibility through outsourcing. This creates opportu-
nities for latecomers to link up with these global value chains as suppliers. The
more the global economy becomes interconnected, the more possibilities there are
for such linkage. Through linkage, the latecomer firm can secure more than just a
stream of revenue. It can tap its links with more advanced firms to acquire knowledge,
technology, and market access – things that would otherwise be beyond the firm’s
limited resources. It is this capacity to secure more from a relationship than the
firm puts in that in the strategy literature is referred to as leverage.5 These sequences
of linkage and leverage can be repeated over and over again until a firm, or collection
of firms within an industry, enhance their capabilities and become, potentially,
advanced players themselves. The sustained and repeated practice of these strategies
by groups of firms can be described as a form of industrial learning. Development can
thus be characterised as a process of strategising by latecomers, through the steps of
linkage, leverage and learning. This involves a process of collective entrepreneurship
where opportunities for such linkage, leverage and learning may be identified, seized
and put into effect, as elaborated in the strategies outlined by agencies such as the
United Nations Industrial Development Organization (UNIDO).6
This article seeks to bring notions from business strategy, such as resource leve-
rage, into the debates over development that have continued now for half a century
and more. A review of experiences over the past quarter-century demonstrates the
relative success of East Asia and the relative decline of other regions such as Latin
America, and thus establishes that the East Asian model of development is one
that, prima facie, has the virtue of success. It may well be that East Asian countries
such as Korea and Taiwan industrialised in conditions that were favourable to their
approaches and that these conditions may no longer apply. It is nevertheless highly
worthwhile to examine the strategies deployed in these countries, and then seek to
match these strategies up to the concepts and approaches advocated by the great
development theorists of an earlier time, in a cross-disciplinary fashion.7
Three major literature streams are highlighted, namely, the capture of latecomer
effects, the exploitation of latecomer industrial dynamics, and the capture of
increasing returns and disequilibrium effects through collective entrepreneurship.
The article elaborates on this constellation of ideas, discussed through the lens of
their application in East Asia. This is done by utilising the strategic categories
mentioned above, namely, linkage with extant global commercial and trade
314
 Catch-up Strategies in Industrial Development

structures, leverage of knowledge, technology and market access from these links,
and the repeated application of such linkage and leverage strategies in a process of
industrial learning. The article concludes with an updated set of Gerschenkronian
‘hypotheses’ or strategies that may be taken as counterparts to Gerschenkron’s
own hypotheses regarding the sources of success of latecomer development in
19th century Europe, embodying a set of institutions that may be deemed essential
in support of a process of industrial learning and around which firms and countries
might be able to strategise their way out of underdevelopment in the twenty-first
century.

Trends and experiences over the past quarter-century

From whichever angle we look at the data and trends over the past quarter-century, the
most arresting feature is the prominence of East Asia and the relative decline of Latin
America. China has made a grand appearance on the world stage, now followed by
India. These are the dominant trends in the world development picture today.
Figure 1 shows the shares of global manufacturing value-added, by regions of the
developing world.8 Here we find a striking pattern, in that East Asian countries have
pulled away from the rest, raising their share of global manufacturing value added
(MVA) from 4 per cent in 1980 to 7 per cent in 1990 and to nearly 14 per cent in
2000. Latin American and Caribbean countries have suffered the inverse pattern,
falling from a share of just over 6 per cent in 1980 to 5 per cent in 1990 and just
under 5 per cent in 2000. Meanwhile, the countries of South Asia have ever so
slowly raised their share to a level still beneath 2 per cent, while the Middle East
and North Africa have done little better, raising their share to just over 2 per cent.
It is the countries of sub-Saharan Africa that have done worst, never rising above 1
per cent of global MVA over the past 20 years.
We may hypothesise that the countries that have done best this time are those
that have mastered the intricacies of medium- and high-technology manufacturing
industry. The way in which this sector of the manufacturing economy has come to
dominate across all regions is shown in Figure 2.

FIGURE 1. Regional shares of global manufacturing value-added, 1980, 1990 and 2000. Source:
Sanjaya Lall/UNIDO.

315
 John A. Mathews

FIGURE 2. Shares of manufactured products in world exports, by technology levels, 1976– 2000
(percentages). Source: Lall/UNIDO.

Figure 2 reveals how the share of manufactured products in world exports has
been rising relentlessly, and in particular how high-technology exports outranked
both medium- and low-technology exports between 1976 and 2000. Note how
high-tech exports (meaning, generally, information technology (IT) and elec-
tronics) had less than 10 per cent of the world share in 1976, but rose relentlessly
to overtake both medium- and low-technology exports by the early 1990s, and by
the year 2000 occupied the highest share, at just over 20 per cent.
How have groups of countries compared within this overall pattern? Figure 3
reveals that, in the 1970s, the East Asian countries (mainly Korea and Taiwan)
still lagged behind the Latin American countries in terms of their share of world
value-added in medium- and high-technology manufactures – the principal
drivers of development – but in the late 1970s and early 1980s they rapidly
caught up with and overtook the Latin American countries, mainly through the
agency of the electronics industry. This industry was seen in East Asia as the
passport to the future but was overlooked in Latin America or pursued, as in
the Brazilian efforts, in clumsy ways.
One conclusion from these data is that East Asian countries were doing
something right during the past 25 years, and Latin American countries were
by contrast falling behind. There are powerful lessons, then, to be learned by
all developing countries today from the East Asian experience. If we take just
one of these East Asian countries, Taiwan, and look at its experience over the
past half-century, we see some of the features that have propelled it to the top
of the development experience and brought the country to the cusp of fully
316
 Catch-up Strategies in Industrial Development

FIGURE 3. Developing regions: world market shares of medium- and high-technology manufacturing
value-added, 1980– 2000 (percentages). Source: Lall/UNIDO.

developed status. The emphasis in all these countries has been on manufactur-
ing and on efforts constantly to upgrade their technological capacities.
Figure 4 shows how, in Taiwan, these efforts led to the rise of various forms
of industry and the decline of employment in agriculture, with manufacturing
as proportion of total value-added rising to a maximum of 35 per cent in the
mid 1980s.
Figure 5 shows how Taiwan’s manufacturing sector has undergone a relentless
shift in structure, from an early emphasis on the manufacture of food, textiles and
related products (accounting for 40 per cent of value-added at the beginning of the
1980s), to metals and machining industries (which rose from around 20 per cent
of output at the beginning of the 1980s to nearly 30 per cent by the early
1990s), to electronics, which has been the engine of manufacturing in Taiwan
over the past 20 years (rising from just over 10 per cent of output in 1981 to
35 per cent by 2001). This represents a major change in industrial structure in a
country, and one which can be taken to be synonymous with industrial develop-
ment. Developing countries today can hardly expect to succeed at the develop-
ment task without undertaking comparable industrial dislocation and
restructuring.9
How then can we square this evidence from the data with the language of stra-
tegy and collective entrepreneurship, and with the theoretical frameworks deve-
loped in the literature on development?
317
 John A. Mathews

FIGURE 4. Taiwan: manufacturing as the engine of growth, 1952– 2002. Source: Industrial
Development Bureau, Ministry of Economic Affairs, Taiwan. Notes: (1) Industry includes
manufacturing, construction and electricity, gas and water sectors. (2) Services include trade and
eating– drinking places, transport, storages and communications, government services, and
finance, insurance and business services.

FIGURE 5. Taiwan: electronics as the engine of manufacturing, 1981– 2002. PC, personal computer;
IC, integrated circuit; NB, notebook PCs; LCD, liquid crystal display. Source: Industrial
Development Bureau, Ministry of Economic Affairs, Taiwan.

318
 Catch-up Strategies in Industrial Development

Intellectual antecedents of latecomer development strategies

I wish to connect with three strands of earlier intellectual endeavors, to make the
case that they provide a sound basis for current strategising around development
goals. These are, first, the debate over a ‘latecomer effect’ that Gerschenkron identi-
fied as being a material factor in the success of countries that industrialised ‘late’ –
that is, after the leaders and in ways through which they could learn from the leaders’
success. This was opposed in the 1960s to the static ‘stages’ theory advanced by
W. W. Rostow – a debate that was decisively won by Gerschenkron. Second, the
debate over latecomer industrial dynamics in an international setting can be
informed by the vision of the Japanese grand-master of development, Kaname
Akamatsu. It was Akamatsu who studied Japanese industrial patterns in the
1930s and 1940s with a view to capturing the latecomer international dimensions,
and who formulated the wonderful metaphor of ‘flying geese’ to capture the upward
and downward trends of industries, as they rise and fall and move from country to
country according to competitive advantages. Third, there is debate over the process
of development itself, seen not from the perspective of simplistic, comparative and
static neoclassical economic models, but from the disequilibrium framework of
circular and cumulative causation, with its emphasis on the capture of increasing
returns, the exploiting of complementarities, and the full force of path dependence.
My argument will be that these three strands provide a sound basis for formulating
the development project in a way that fits the strategic requirements of firms and
countries in the era of the globalisation of industry in the twenty-first century.10

Gerschenkron and the latecomer effect

All successful development strategies today start with the recognition of a late-
comer effect, and are concerned with finding ways to turn this effect into a
source of advantage. Gerschenkron captured his insights in a series of six or
seven hypotheses that I interpret here as statements of strategy that applied
in the conditions of the 19th century. One of my tasks in this essay is to formulate a
comparable set of strategies for latecomers that might apply in the conditions
of the twenty-first century.11
Gerschenkron’s ideas were fashioned as a means of combating the influence of
Rostow’s notion of ‘stages of growth’, where development is conceived as
following a series of steps in a mechanical, uniform sequence.12 Such an approach
eliminates strategy and eliminates any need to ground a development approach at
any one time with the global conditions and opportunities prevailing at that time.
Gerschenkron’s approach is focused exclusively on the latter and its emphasis is
firmly on the building of new institutions and the pursuit of fresh strategies,
depending on the situation at the time that the country is attempting (or
re-attempting) its development push. It is the institutions and the strategies
that matter most, along with how they are used to overcome latecomer disadvan-
tages and take advantage of whatever latecomer advantages there might be at the
particular time that development is being attempted.13
We can take Gerschenkron’s idea further and apply it to the level of the firm,
not just a country. It is at the firm level, of course, that strategic issues are manifest.
319
 John A. Mathews

As noted earlier in the discussion, the situation facing firms that arrive late
on the industrial scene is one which combines apparently hopeless drawbacks,
difficulties and inadequacies, with advantages that flow precisely from being
‘late’. The latecomer has a world of knowledge on which to draw and a
‘roadmap’ of the future in terms of products and technologies to be mastered. It
is the distinctive strategies pursued by such latecomer firms that are of interest.14
From a strategic perspective, the task of the latecomer is to devise ways of
catching up by securing access to the knowledge and technology controlled by
advanced firms in advanced countries. This requires them to understand the
character and driving forces behind the industrial dynamics that govern the
spread and diffusion of industrial processes and technologies around the world.
This is where Akamatsu made his extremely important contribution, based on
his studies of Japanese industrial sectors such as textiles in the pre-war years.

Akamatsu and the flying geese pattern of industrial dynamics

The vision contained in Akamatsu’s wonderful ‘flying geese’ metaphor15 can be
combined with product life cycle insights, and brought up to date with global
value chain insights, to provide a second, essential strand to current strategy for-
mulation. What do flying geese patterns of industry propagation look like? It is
possible to demonstrate flying geese patterns using real data, and from industries
that post-date the time that Akamatsu was writing about. We may capture one
aspect of the flying geese effect by examining export– import data and measuring
Revealed Comparative Advantage (RCA).16 For East Asia as a whole, for all elec-
tronics, Figure 6 shows Japan’s RCA curve rising and then falling in the 1990s as
the other countries in East Asia were catching up with it. These patterns are very
much in keeping with the patterns of distribution of trade competitiveness outlined
by Akamatsu.17
We do not have to stick with a rigidly deterministic interpretation of this frame-
work to see that it makes sense that countries gain an initial foothold in a new indus-
try through a sequence of steps, from imports to domestic production and
eventually to exports, and that they successively upgrade following their competi-
tive advantages – as shown in Figure 6. Instead we may view Akamatsu’s frame-
work as an early and profound insight into the way that the developing economy
needs to be linked to the advanced economies in order to generate its own activities,
utilising its temporary competitive advantages of low costs. It may be argued that
China is currently benefiting from flying geese patterns as it takes up manufacturing
activities that were formerly undertaken in Japan, Korea and Taiwan.18

The flying geese paradigm – updated.

The flying geese paradigm may be utilised as a general way of describing latecomer
catch-up industrial dynamics, without any special reference to Japan or East Asia
generally. As noted above, in Akamatsu’s original formulation, there are only
trade and production variables, with the clear strategic implication that countries
should strive to ‘seed’ new industries when the technologies and capital equipment
become available. The means of doing so are left open in Akamatsu’s formulation. In
320
 Catch-up Strategies in Industrial Development

FIGURE 6. East Asian exports of electronics: flying geese patterns. Source: John A. Mathews, ‘The
Intellectual Roots of Latecomer Industrial Development’, International Journal of Technology and
Globalisation, Vol. 1, No. 3/4 (2005), p. 439, based on World Bank data.

Raymond Vernon’s product life cycle framework, the main actor becomes the multi-
national corporation (MNC), and so the strategic issue for the latecomer turns on
whether to attract MNCs or not. As we know, Japan adopted a strategy of extreme
domestic self-sufficiency in terms of capital, while scouring the world for technology
to enable it to build industries that could compete with those of the advanced
countries. These could move through phases of sophistication – from black and
white TV to colour TV, videocassettes and HDTV – by which time Japan had
caught up and was an industrial leader in its own right. The later East Asian
321
 John A. Mathews

Tigers emulated Japan but not in all strategic details: Korea shunned foreign direct
investment (FDI) and relied instead on targeted capital equipment imports, while
Taiwan made use of both, and Singapore and Hong Kong were much more open
to FDI and MNC investment.
Now we are in a new phase of globalisation where the value chains that connect
activities around the world are not generally controlled by one MNC, but rather are
disaggregated – the so-called global value chains.19 These sequences of activities
are producing work in progress that can span different countries, whole regions or
the entire world. By 2001, China was exporting more than US$20 billion in parts
and components to other production locations in East Asia.20 The issue is: who is
strategically driving these production networks? From the perspective of the
advanced firms, such as production houses (like Nike in athletic footwear) or
buyers or retail chains (like The Gap or Tommy Hilfiger), the strategic initiative
lies in seeking greater efficiencies and lower costs. From the perspective of the
latecomers, the strategic issue is how to become inserted in such value chains.
Thus the strategic options expand, for both advanced firms and latecomers.
However, the underlying latecomer industrial dynamics, of shifting production
and, more recently, research and development (R&D) activities according to com-
petitive cost and logistics advantages, remain in force. It is just their institutional
expression that has changed.21

Hirschman, Myrdal and Rosenstein-Rodan on unbalanced development

Third, there is debate over the process of development itself, seen, as noted, not
from the perspective of neoclassical economic models but from the disequilibrium
framework of circular and cumulative causation. As an appropriate framework for
understanding development, it is associated with the grand contributions of Paul
Rodan-Rosenstein, Gunnar Myrdal and above all Albert Hirschman.22 Hirsch-
man’s 1958 book, Strategy of Economic Development, may be taken as represen-
tative of this school of thought – another essential strand for understanding the
success of East Asian industrial development and thus for any further development
successes of the twenty-first century.
The point to emphasise in line with these contributions is that development is a
process that takes place in disequilibrium, which generates opportunities for entre-
preneurial initiative, and where criteria of efficiency are likely to be outweighed by
criteria of overall development and linkages that develop at differential rates.23
This is the key to understanding the success of East Asia, where authoritarian
governments were able to get economies started on ‘virtuous’ growth paths,
with new sectors feeding off existing sectors through a process that was subjected
to the ruthless performance tests of export success. Exports became not just a
means of earning foreign currency (important in its own right), but also, even
more significantly, an indicator of success which would legitimate further state
intervention to support the extension of such industries, through financial
repression (lowering interest rates for targeted sectors) or other systems of pro-
viding entrepreneurial inducements. Ultimately many of these authoritarian
regimes have emerged as democracies (Taiwan, Korea) where they manage to
maintain their developmental emphasis.24
322
 Catch-up Strategies in Industrial Development

The field in which equilibrium-based reasoning is most pernicious and dama-

ging is that of development. For development simply cannot be squeezed into an
equilibrium-based framework and represented as a balanced process. This is to
recapitulate the Rostow ‘stages of growth’ scenario, but at a more fundamental
level. There were many development economists who understood this perfectly
well. They start with the Big Push idea put forward by Rosenstein-Rodan in the
1940s, and extend through Myrdal with his explicit usage of the terms ‘circular
and cumulative causation’, to Hirschman with his Strategy of Economic Develo-
pment. All of these I take to be ways of trying to deal with the issue of the lack of
resources available for development in the collective entrepreneurial strategies
that might be used to overcome this disability.
Yet it is in the field of development that the most damaging pitched battles have
been fought between neoclassical orthodoxy – in the form of the ‘market-friendly’
strategies of the 1980s and the so-called ‘Washington Consensus’ more recently –
and developmental strategies that depart from such orthodoxy.25 The World Bank
and the International Monetary Fund (IMF) have been the institutional vehicles
of orthodoxy. It is against this tradition that an alternative approach, grounded
in the real experiences of the East Asian economies, has struggled to be born.26

Linkage, leverage and learning

In the strategic management literature, there is a clear way of dealing with the lack of
resources that prevents firms from reaching their strategic goals. It is to fashion stra-
tegies that enable the firms to access these resources by offering other firms something
in return. If resources are lacking, then their leverage from external sources is the
obvious way to proceed. The concept of resource leverage matches the requirements
of the latecomer firm exactly. The concept was introduced into the strategic manage-
ment literature and has been used as a means of explaining how the best competitors in
the world stay abreast of new developments, by ensuring that through alliances and
various forms of joint ventures they identify and secure access to the resources
needed to keep diversifying their product portfolio.27 The same idea underpins the
strategy of the latecomer firm. Whereas the economic development literature dis-
cusses its strategy in terms of technological diffusion and technology transfer,
these are weaker concepts than resource leverage. They place the impetus for the
transfer on firms in the advanced countries (rather than on the latecomer’s own stra-
tegic calculations) and they ignore the issue as to how the latecomer can shape events
so that business arrangements involving transfer can be turned into leverage and
learning opportunities. So we can appropriate the notion of resource leverage as
the overarching strategic concept with which to make sense of the successes of
latecomers in breaking into advanced technological sectors.
Resources in this sense can be interpreted as technologies, know-how or market
access. A latecomer firm can formulate a strategy to forge entry into an established
industry by seeking ways to secure the needed technology – through undertaking
contractual work for existing firms (Original Equipment Manufacturing or
OEM) through which not just revenues but also knowledge can be extracted.28
The task is to identify the sources of complementarity so that the latecomer firm
has something to offer in return for the economic or technology transfer. This is
323
 John A. Mathews

where the connection with the processes of globalisation and the emergence of novel
institutional forms, such as global value chains, is so important. Private sector firms
such as the Hong Kong-based Li & Fung have developed a business model around
the creation of global value chains as it receives orders from buyer firms in the
advanced countries.29 The point of a strategic perspective is that global value
chains are being created and disbanded all the time, but under conditions that
reflect the constraints and dynamics of the global economy. A framework for
development couched in strategic terms, and linking industrial development to
globalisation processes, would have major practical implications.30
Latecomer firms can be effective in overcoming their disadvantages and exploiting
their potential advantages (for example, of technological leapfrogging) only if the
country in which they are located builds a set of supporting institutions that guide,
shape and channel the linkage and leverage processes. This is a system of industrial
learning, and one which itself adapts and improves over time in a process of insti-
tutional learning. With each iteration of linkage and leverage strategies, new capabili-
ties are acquired, by an individual firm or by a group of firms. This then serves
as a platform for the next round of linkage and leverage, and further enhancement
of capabilities. This process could be repeated several times before a firm or group
of firms approaches industry leaders in terms of its capabilities.
The best examples of such repeated applications of linkage and leverage are
found in the high-technology industrialisation experiences of East Asian countries
such as Korea and Taiwan. There the strategy being applied is very clear. The
coherence of repeated application strongly argues against random adaptations or
just plain ‘luck’ in accounting for East Asian success in knowledge-intensive
industries. If the approach to industry creation and industry upgrading works
once, why not try it again – and again, and again?
The novelty of this perspective lies in the application of the strategic view to this
development problem, and in particular the concept of resource leverage as a viable
strategic framework for latecomers to use in evaluating their options. In the case of
Mexican apparel producers, for example, such a strategy leads towards ‘full
package’ production, and firmly away from simply complying with least cost
demands.31 Firms can thus see themselves as pursuing a particular kind of strategy,
namely a latecomer strategy, and can advance their interests by tapping into the
resources, technologies and knowledge available in the advanced world, provided
they find the strategies of complementarity needed to effect this.

Gerschenkronian strategies for latecomer development: updated

Let me summarise the strategic issues involved in industrial development from the
perspective of the capture of latecomer advantages wherever they may be identified.
As opposed to the canons of the ‘Washington Consensus’ against which such a strat-
egy is formulated, the aim of the process from the perspective of the capture of late-
comer advantage is one of ‘growth with late industrialisation’, or some such
formulation.32 Some strategies may be expected to work better than others in the
early years of the twenty-first century, that is, in conditions governed by the World
Trade Organization (WTO), by Trade-related Investment Measures (TRIMS) and
by Trade-related Aspects of Intellectual Property Rights (TRIPS). In place of
324
 Catch-up Strategies in Industrial Development

formulating a set of hypotheses regarding development processes, we may formulate

a set of strategies, couched in terms of known successes from the past and their
generalisation in current conditions. For such an exercise, we have to make certain
assumptions, such as the existence of stable macroeconomic conditions and reason-
ably good governance. If these conditions do not exist, then no strategy can work.
But these conditions on their own cannot guarantee success in development; they
are necessary but not sufficient conditions. There is by now enough experience of
development success and development failure to make this abundantly clear.

Getting started
Latecomers – say, from Africa or Central Asia – will first need to formulate a
strategy for getting started, which means finding a way to link with the existing
circuits of capital and technology in the advanced world. The best means to do
so is through an institutional commitment, by establishing a development
agency with clear responsibilities for guiding and orchestrating the industrial
development process. Initially it may encompass all development-related
activities, including finance, land development and so on, but as experience is
secured and specialisation becomes desirable, certain parts may be spun off,
such as an investment-attracting vehicle, an industrial development bureau to
plan the creation of new industries, or an export processing zone creation
vehicle. The development agency might work with international or United
Nations (UN) agencies at first in order to get started – to make the country
‘development-ready’. These first steps will create the core of an institutional
bias towards development, or what Gerschenkron called ‘institutional vehicles’
to effect catch-up.33

International position
Latecomers will strategise around the circumstances in which they find them-
selves, with an existing international division of labor and existing capital, trade
and technology flows. These conditions differ in the mid 2000s from those encoun-
tered by East Asian latecomers in the 1960s and 1970s. Latecomers today will seek
to adapt to these new conditions and complement them with their own initiatives to
secure their incipient latecomer advantage. They will make use of latecomer
industrial dynamics and identify a place for themselves in a flying geese for-
mation, where they can leverage capital, technology and knowledge from a lead
goose and build new industries as cost and competitive advantages can be cap-
tured. They will behave as a ‘fast follower’ of this lead goose and, as circum-
stances permit, imitate the industries, technologies and management and
organisational practices of firms in the lead goose country.34

Changing industrial structure: manufacturing as a source of increasing returns

Latecomers will see their industrial structure as one to be relentlessly changed and
upgraded, with an emphasis initially on the reform and industrialisation of agricu-
lture, followed by the building of local manufacturing industries to absorb labor
325
 John A. Mathews

displaced from agriculture. Latecomers will focus primarily on manufacturing as

the engine of industrial development, seeking to upgrade it to the point where it
becomes the primary industrial activity, in the pursuit of increasing returns that
are best captured through manufacturing. Latecomers are likely to begin their
manufacturing operations with light materials and sub-contracting activities, but
will move as quickly as is expedient to more demanding activities. The case of
resource-dependent developing economies – such as Malaysia, Russia or Brazil
– presents special challenges. Here the issue is to utilise the resource wealth in
such a way that it does not create a segmented economy, with a resources-
driven exchange rate that works against the interests of an emerging sector, or a
group of resources-driven MNCs that work against the industrial development
of the rest of the economy.35

Insertion in regional and global value chains

Latecomers will view their industrial development as a process of self-insertion in
existing value chains, constructed either by MNCs or by advanced firms looking
to globalise their value chains of production, logistics and R&D. Latecomers will
seek to link themselves to these existing structures in order to secure revenue-
generating activities, but also to leverage from these sources the knowledge, tech-
nology and market access that will be needed as the latecomer seeks to rise up the
development ladder. Such insertion will be subject to upgrading pressures, as local
firms seek to move from simple OEM contracting to Own Design and Manufactur-
ing (ODM), where specifications are made more loosely, and Own Brand
Manufacturing (OBM), where firms emerge as fully developed entities. Where
production systems have not been disintegrated and no global value chains
have been created, latecomers will have to look for strategic equivalents
or work with international agencies to create such value chains.36

Institutional and economic learning

Latecomers will seek to compensate their shortcomings in technology and market
sophistication through institutional innovation, under the guidance of the develop-
ment agency, creating institutional solutions to problems as they are encountered,
such as export processing zones to promote FDI in manufacturing activities, or
public research institutions (like the Industrial Technology Research Institute
(ITRI) in Taiwan) to act as technology leveragers and builders of national techno-
logical competences. Repeated applications of the processes of linkage with exist-
ing commercial structures and leverage of knowledge from such sources will
result in latecomers’ learning to practice development as a process of collective
entrepreneurship.37 This institutional innovation creates what Gerschenkron
termed ‘special institutional factors’ which are designed to compensate for late-
comer disadvantages, but which can also be exploited as sources of advantage.
Institutions and practices will be discarded as soon as they have outlived their
utility, to avoid the trap of allowing firms to become dependent on them. The insti-
tutions utilised in East Asia over the decades of its latecomer catch-up efforts,
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 Catch-up Strategies in Industrial Development

covering specific matters such as technology capture and diffusion, financial

attraction and new industry creation, are displayed in Figure 7.38

Firm creation
Latecomers focus their developmental efforts on the nurturing of new firms, which
calls for sustained attention to the sources of entrepreneurial initiative. A country
develops through the creation and sustenance of sophisticated, modern firms that
are managed and organised according to the best prevailing practices. This ensures
them one source of latecomer advantage, namely, that they are not forced to repli-
cate all previous steps in the evolution of business to the point where they make
their entry. But many developing countries allow an overgrown bureaucracy to
place excessive barriers in the way of business formation, and the dismantling
of such barriers, and their replacement with incentives, is a critical feature of
successful development.39

Industry creation
Latecomers build new industries in the way that Toyota builds new cars: every
facet of the process is subject to quality control. Once there is a mechanism in
place for producing viable, competitive firms, the latecomer country is able to
target the industries in which these firms will be encouraged to compete, based
on the prior experience of these industries in the developed countries. The pre-
paration and cultivation of such industries calls for state-led efforts by a variety
of agencies, from the acquisition of land for the firms destined for the designated
industry, the acquisition of technology and the securing of finance, the adoption
of nurturing strategies including tax concessions and R&D subsidies, the control

FIGURE 7. National systems of economic learning.

327
 John A. Mathews

of excessive competition at first to allow companies time to develop their

products and markets, and a phased opening up to the full force of international
competition. There is no better tutor for the developing world in this process of
industry design and creation than Japan. Of course, numerous mistakes can be
expected along the way and so an important part of the institutional machinery
should be devoted to recovery from such mistakes, such as quick means for dis-
solving targeted R&D consortia that are not working. As separate industrial
sectors are created, so the challenge becomes one of finding ways to link them
together, through firms that overlap two or more sectors. This too is a challenge
of collective entrepreneurship. It can be characterised, following Erik Dahmén,
as the challenge of creating ‘development blocks’ that serve as the building
blocks of the developing economy. This is a process that enables firms to
engage in greater and deeper levels of specialisation, which can only be achieved
(following Adam Smith’s great insight) as the market expands, and for a develop-
ing country ‘the market’, of course, means the world market, not just the domestic
market.40

Export orientation and import substitution

Latecomers will practice both export orientation (EO) and import substitution (IS)
in selection of targeted industries and industrial activities. EO serves to generate
foreign currency and exposes domestic firms to the whip of international compe-
tition. Indeed, export performance was found in East Asia to serve as a surrogate
for general economic and business performance in assessing whether continued
state assistance was warranted. IS serves as a highly selective way of targeting
activities for special promotion, to overcome import bottlenecks and create the
core of new industries, thereby propagating and further upgrading general indus-
trial capabilities. The combination of EO and IS approaches simultaneously calls
for sophisticated policies. Taiwan’s pursuit of high-technology industries has
involved numerous instances of such combined policies: its pursuit of the
optical disk drive industry (such as CD-ROMs) provides a case in point. In
CD-ROMs the key technological import from Japan is the optical pick-up head.
The ITRI laboratories and private sector firms in Taiwan targeted this key
import for domestic development, and eventually succeeded – the optical disk
drive industry in Taiwan has flourished as a result.41

Firm formation and selection

Latecomers will give every assistance to new firms as they seek to enter new
industries, consistent with international obligations under the WTO such as
TRIMS and TRIPS. Pre-competitive assistance of all kinds will be offered to
nurture new firms and industries in their formative stages, through the collective
licensing of technologies and their rapid dissemination to domestic firms, and
the development of new institutional forms, such as R&D consortia, for this
purpose, but the aim is to build firms that can stand on their own feet and, once
exposed to international competition, the firms must be allowed to find their
own level and discover their own strategies. Selection of firms by the market is
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 Catch-up Strategies in Industrial Development

always superior to arrangements where firms look for assistance during periods of
trading difficulties.42

Formation of development blocks and clusters

Latecomers will selectively choose to develop certain related industrial activities,
depending on what already exists and where MNCs might want to make invest-
ments. They will aim to create not single firms but clusters, or development
blocks, where increasing returns are captured from inter-firm complementarities
and clear targets are created through gap filling and input replacement. Such clus-
ters create the best opportunities for local entrepreneurs to find outlets for their
activities. The health of clusters should be carefully monitored and self-organising
cluster associations encouraged, to give them a clear sense of collective identity
and purpose, which underpins successful strategy.43

Internationalisation and globalisation of firms

Latecomers will attach the highest importance to ensuring that national firms
become international and global players as fast as possible, through accelerating
their internationalisation. This is captured overall through an emphasis on
outward FDI as much as on inward FDI. While inward FDI can be used to
promote linkages within the domestic economy, outward FDI is a way of building
linkages with the global economy and building the competitiveness of domestic
firms. The appearance of such MNCs from developing countries is a tangible
sign of the success of development strategies.44

Closing the gap and maintaining the development perspective

Latecomers seek to catch up with the advanced countries, industry by industry,
technology by technology, firm by firm. Until such catch-up has been accom-
plished, the country remains as an imitator or fast follower, not an innovator.
The advantage of such a latecomer position is that industries can be targeted,
based on their prior testing in the advanced countries. The institutions developed
in the process of achieving catch-up may then need to be discarded as the country
approaches the leaders; imitation will give way to innovation and, for this, new
institutions will be needed.45 To reach such a state, and leave the institutions of
followership behind, is the goal of all latecomers and all catch-up strategies.
The way that Korea and Taiwan both measured the gap between themselves
and leading semiconductor firms in the 1980s and then closed the gap in the
1990s is shown in Figure 8.46

Concluding remarks
This article has sought to bring the debates over development into the sphere of
business strategy. Linkage, leverage and learning are strategies of innovation that
are available to latecomer firms. They enable the firms to make connections with
the wider global economy, and draw from these linkages skills, knowledge and
technology resources that would otherwise lie well beyond the reach of the
329
 John A. Mathews

FIGURE 8. (a,b). Closing the technology gap in semiconductors. Source: John A. Mathews and
Dong-Sung Cho, Tiger Technology: The Creation of a Semiconductor Industry in East Asia
(Cambridge University Press, 2000). Notes: The figures show technology level as circuit line
widths, that is, the gap between lines etched on the integrated circuit. The key breakthrough was
to reduce line width to below 1 mm.

developing firm. These strategies are employed in pursuit of the strategic goal of
industrial catch-up. This is an elusive goal that few countries so far from the non-
Western world have achieved. Japan was the first, followed by the Asian Tigers
such as Korea, Taiwan and Singapore. Of the developing countries today, probably
China is most determinedly implementing strategies of linkage and leverage in the
full pursuit of catch-up with the West as an overriding national goal.
330
 Catch-up Strategies in Industrial Development

The contribution I have sought to make in this article is to argue that develop-
ment in a competitive world is not a hopeless task. Of course the global economy
is populated by hundreds – even thousands – of well-developed, agile and highly
competitive firms, but they bring their institutional and technological inertia to the
market. They are propelled to seek competitive advantage through various forms
of outsourcing. As they do so, equally agile firms in developing countries can
fashion their strategies to offer complementary goods and services and capture
latecomer effects, such as low costs that are only available for a short time. The
effect of applying strategies of linkage and leverage is that latecomers
are enabled to overcome their disadvantages and exploit their few advantages as
latecomers to the full. It makes sense for latecomers to utilise all the resources
from the advanced world that they can acquire, in return for providing services
such as low-cost manufacturing. The trade-off can be exploited to the advantage
of the latecomer only if there is a strategic choice to utilise the linkage for purposes
of knowledge gain. This is the inescapable strategic choice that must be made, by
the latecomer itself.
Earlier theories of industrial development, such as the product life cycle theory,
and early versions of the global commodity chains thesis emphasised how firms in
latecomer countries were caught up in decisions taken elsewhere, by firms in the
advanced countries, and frequently trapped in positions from which they would
not be able to extricate themselves (for example, as low-cost contract producers
without any hope of technological upgrading). The evidence is clear that late-
comer firms do not have to adopt a passive stance in relation to global develop-
ments. They can make strategic choices and, by making such choices in
conscious understanding of their latecomer advantages, they can expect to
become players in the global economy, and thereby contribute to the development
and upgrading of the countries from which they emanate.

Notes
This paper is dedicated to the late Sanjaya Lall, whose influence permeates every page. The paper was drafted
initially at the Rockefeller Foundation Study Center at Villa Serbelloni, Bellagio, Italy, where I was a visiting
scholar during the month of September 2004. I wish to thank in particular Robert Wade, Mark Dodgson and
the late Sanjaya Lall for their ideas that have fed into this paper and for their support.
1. See Paul N. Rosenstein-Rodan, ‘Problems of Industrialisation of Eastern and South-Eastern Europe’, The
Economic Journal, Vol. 53, No. 210/211 (1943), pp. 202–11; and Albert O. Hirschman, Strategy of Econ-
omic Development (Yale University Press, 1958).
2. See Alexander Gerschenkron, ‘Economic Backwardness in Historical Perspective’, in Bert F. Hoselitz (ed.),
The Progress of Underdeveloped Areas (University of Chicago Press, 1952); and Alexander Gerschenkron,
Economic Backwardness in Historical Perspective (The Belknap Press of Harvard University Press, 1962).
3. For the application of the concept of latecomer to firms, see Mike Hobday, ‘East Asian Latecomer Firms:
Learning the Technology of Electronics’, World Development, Vol. 23, No. 7 (1995), pp. 1171– 93; and
John A. Mathews, ‘Competitive Advantages of the Latecomer Firm: A Resource-Based Account of Industrial
Catch-up Strategies’, Asia Pacific Journal of Management, Vol. 19, No. 4 (2002), pp. 467–88.
4. See Lin-su Kim, Imitation to Innovation: The Dynamics of Korea’s Technological Learning (Harvard
Business School Press, 1997).
5. See, for example, the discussion of ‘resource leverage’ as a strategy for making do with little, and making up
for lack of resources by seeking to engage others in a way that makes their resources available, in
C. K. Prahalad & Gary Hamel, ‘The core competence of the corporation’, Harvard Business Review, Vol.
68, No. 3 (1990), pp. 79–91. Of course, the influence of development thinking has also been felt in the

331
 John A. Mathews
business and strategy literature, as in the notion of unbalanced development of the economy complementing
the unbalanced development of the Penrosean firm. See Edith Penrose, The Theory of the Development of the
Firm (Oxford University Press, 1959).
6. For an application of these ideas of linkage and leverage, see UNIDO, Industrial Development Report 2002/
2003: Competing through Innovation and Learning (United Nations Industrial Development Organization,
2002).
7. See Adrian Leftwich, ‘Politics in Command: Development Studies and the Rediscovery of Social Science’,
New Political Economy, Vol. 10, No. 4 (2005), pp. 573 –607, for a bold statement of the role of the social
sciences in general in tackling the multi-faceted problems of development.
8. I am indebted to the late Sanjaya Lall and UNIDO for these figures.
9. Of course, not all activities in electronics can be described as ‘high-tech’; many parts such as back-
end assembly are labour-intensive and low- or medium-technology, but they provide a pathway of
upgrading that leads to the more knowledge-intensive activities that are the real breakthrough in
industrialisation.
10. For further elaboration on these historical antecedents, see John A. Mathews, ‘The Intellectual Roots of Late-
comer Industrial Development’, International Journal of Technology and Globalisation, Vol. 1, No. 3/4
(2005), pp. 433 –50.
11. In a review of Gerschenkron’s work by one of his foremost students, Albert Fishlow summarises
Gerschenkron’s approach as follows: ‘The central notion is the positive role of relative economic backward-
ness in inducing systematic substitution for supposed prerequisites for industrial growth. State intervention
could, and did, compensate for the inadequate supplies of capital, skilled labor, entrepreneurship and tech-
nological capacity encountered in follower countries seeking to modernise. England, the locus of the Indus-
trial Revolution, could advance with free market guidance along the lines of Adam Smith. France, beginning
later, would need greater intervention to compensate for its limitations. In Germany, the key innovation
would be the formation of large banks to provide access to needed capital for industrialisation, even as
greater Russian backwardness required a larger and more direct state compensatory role.’ See Albert
Fishlow, ‘Alexander Gerschenkron: A Latecomer Who Emerged Victorious’, Economic History Services,
14 February 2003, p. 3, http://www.eh.net/bookreviews/fishlow.shtml
12. Rostow’s ideas are outlined in popular form in Walt W. Rostow, The Stages of Economic Growth: A Non-
Communist Manifesto (Cambridge University Press, 1960) and in more scholarly fashion in Walt W. Rostow,
‘The Stages of Economic Growth’, The Economic History Review, Vol. 12. No. 1 (1959), pp. 1– 16.
13. Hobday treats the matter thus: ‘Gerschenkron argued that there were no automatic stages of development and
that countries did not and could not pass through the same stages of development that others had passed
through before them, precisely because others had passed through them.’ See Mike Hobday, ‘Innovation
in Asian Industrialization: A Gerschenkronian Perspective’, Oxford Development Studies, Vol. 31, No. 3
(2003), pp. 293 –314.
14. See Hobday, ‘East Asian Latecomer Firms’, and Mathews, ‘Competitive Advantages’ for a discussion of firm
strategies from the distinctive perspective of latecomer firms.
15. Kaname Akamatsu, ‘A Historical Pattern of Economic Growth in Developing Countries’, The Developing
Economies, Vol. 1 (1962), pp. 3–25. Such a vision also informs the more advanced studies of the Japanese
economy and its development, such as Miyohei Shinohara, Industrial Growth, Trade and Dynamic Patterns
in the Japanese Economy (Tokyo University Press, 1982). Balassa’s step-ladder model is another instance of
flying geese thinking; see Bela Balassa, Development Strategies in Semi-Industrialized Economies
(Johns Hopkins University Press, 1982).
16. Revealed Comparative Advantage (RCA) is here defined simply by the ratio of share in exports/share
in gross domestic product (GDP).
17. See An-Chi Tung, ‘Beyond Flying Geese: The Expansion of East Asia’s Electronics Trade’, German Eco-
nomic Review, Vol. 4, No. 1 (2003), pp. 35–51, for a discussion of this point. For a Japanese perspective
on the flying geese framework, see Terutomo Ozawa, ‘The “Hidden” Side of the “Flying Geese” Catch-
up Model: Japan’s Dirigiste Institutional Setup and a Deepening Financial Morass’, Journal of Asian Econ-
omics, Vol. 12, No. 4 (2001), pp. 471–91; and Terutomo Ozawa, ‘Pax Americana-led Macro-Clustering and
Flying Geese-style Catch-up in East Asia: Mechanisms of Regionalized Endogenous Growth’, Journal of
Asian Economics, Vol. 13, No. 6 (2003), pp. 699–713.
18. While Figure 6 is couched in terms of trade data (imports, exports and RCA), there is no reason
why investment flows should not be analysed from the same perspective, taking flows of FDI to the industry
level.

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 Catch-up Strategies in Industrial Development
19. See UNIDO, Industrial Development Report 2002/03, especially ch. 6, for a discussion of their potential for
latecomers.
20. The recent World Bank report on East Asian integration refers to this as ‘growth of trade in components or
partly assembled goods’ or ‘production networks’ and ‘production sharing arrangements’. See Francis Ng &
Alexander Yeats, East Asia Integrates: A Trade Policy Agenda for Shared Growth (The World Bank, 2003),
pp. 3, 60.
21. In this sense I part company with scholars such as Mitchell Bernard & John Ravenhill, ‘Beyond Product
Cycles and Flying Geese: Regionalization, Hierarchy, and the Industrialization of East Asia’, World Politics,
Vol. 47 (1995), pp. 171 –209, who make the same point, namely that regional production networks have over-
taken the MNC- and trade-related frameworks first formulated by Akamatsu and Vernon, and conclude that
the flying geese paradigm is therefore exhausted. On the contrary, I view the updated flying geese paradigm
as providing the best intellectual framework for understanding latecomer industrial dynamics, and the one
best suited to frame urgently needed empirical investigation of the process of industry creation in China,
India and the South-east Asian countries today – by UN agencies such as UNCTAD and UNIDO, public
sector research institutions and private research foundations.
22. See Rosenstein-Rodan, ‘Problems of Industrialisation’; Hirschman, Strategy of Economic Development;
Gunnar Myrdal, Economic Theory and Under-developed Regions (Duckworth, 1957); Gunnar Myrdal,
Asian Drama: An Inquiry into the Poverty of Nations (Twentieth Century Fund, 1968)
23. I am indebted to a referee for pointing out that Nathan Rosenberg’s classic history of the US machine tool
industry in the 19th century is an industry-specific case of the stimulating consequences of disequilibria; see
Nathan Rosenberg, Inside the Black Box: Technology and Economics (Cambridge University Press, 1981).
24. There is a considerable literature on this topic, as reviewed in Geoffrey R. D. Underhill & Xiaoke Zhang,
‘The Changing State–Market Condominium in East Asia: Rethinking the Political Underpinnings of Devel-
opment’, New Political Economy, Vol. 10, No. 1 (2005), pp. 1–24. See also Linda Weiss, The Myth of the
Powerless State: Governing the Economy in a Global Era (Cornell University Press, 1998), who provides an
arresting discussion in the context of a continuing role for state agencies in the process of development.
25. On the Washington Consensus, see John Williamson, ‘Democracy and the “Washington Consensus”’, World
Development, Vol. 21, No. 8 (1993), pp. 1329–36.
26. World Bank, The East Asian Miracle: Economic Growth and Public Policy (The World Bank, 1993). For
critiques and discussion, see Alice Amsden, ‘Why Isn’t the Whole World Experimenting with the East
Asian Model to Develop? Review of the East Asian Miracle’, World Development, Vol. 22, No. 4 (1994),
pp. 627 –34, and Robert Hunter Wade, ‘The World Bank and the Art of Paradigm Maintenance: The East
Asian Miracle in Political Perspective’, New Left Review, No. 217 (1996), pp. 3 –36, for insights into this
process of paradigm maintenance by the Bretton Woods institutions.
27. See Prahalad & Hamel, ‘The Core Competence of the Corporation’, for the canonical description.
28. The flagship UNIDO, Industrial Development Reports contain discussions of such leverage strategies, as in
the 2002 and 2005 reports.
29. On the workings of Li and Fung, see the interview with co-founder Victor Fung, in Joan Magretta, ‘Fast,
Global and Entrepreneurial: Supply Chain Management, Hong Kong Style. An Interview with Victor
Fung’, Harvard Business Review, Vol. 76, No. 5 (1988), pp. 102– 14.
30. For a recent study of a set of clusters in Latin America, see Carlo Pietrobelli & Roberta Rabellotti, ‘Upgrad-
ing in Clusters and Value Chains in Latin America: The Role of Policies’, MSM-124, Micro, Small and
Medium Enterprise Division, Inter-American Development Bank, Washington, DC, 2004, where clear
policy implications are drawn for the Inter-American Bank.
31. On the shift to ‘full package’ production in Mexican textile districts, see for example Jennifer Bair & Gary
Gereffi, ‘Local Clusters in Global Chains: The Causes and Consequences of Export Dynamism in Torreon’s
Blue Jeans Industry’, World Development, Vol. 29, No. 11 (2001), pp. 1885–903.
32. This is the terminology utilised by Charles Gore, ‘The Rise And Fall of the Washington Consensus as a
Paradigm for Developing Countries’, World Development, Vol. 28, No. 5 (2000), pp. 789–804, in an insight-
ful review of development strategies and alternatives to the ‘Washington Consensus’. Gore identifies five
strands of such a developmental alternative to the Washington Consensus, namely: (1) that a process of
growth and structural change is best achieved through a contingent linkage of the national economy with
the international economy, for example, through regulated inflows of FDI; (2) that growth and structural
change may best be promoted through a combination of macroeconomic stability with ‘productive develop-
ment policy’ covering such matters as technology and industry policy; (3) the success of such an approach
calls for government–business cooperation within the framework of a developmental state (through agencies

333
 John A. Mathews
created to guide investment and exports, for example); (4) distributional dimensions of the process
are managed to ensure its legitimacy; and (5) regional integration and cooperation policies are pursued
as an important element of wider strategic integration, such as through promotion of regional production
chains.
33. See successive issues of UNCTAD’s Trade and Development Report in the 1990s for discussion of such start-
ing points, or more recently the new flagship report of UNIDO, the Industrial Development Report.
34. The tracking of such movements of industries from country to country, as comparative and competitive
advantages change, is one of the most important – but neglected – functions of the international develop-
ment agencies. This could be a prime responsibility of UNCTAD, for example, consistent with the views
of its recent Director-General; see Ricardo Ricupero, ‘Nine Years at UNCTAD: A Personal Testimony’,
in Shigehasa Kasahara & Charles Gore (eds), Beyond Conventional Wisdom in Development Policy: An
Intellectual History of UNCTAD 1964–2004 (United Nations, 2004).
35. Brazil’s resource-led economic boom, which has had few spillover benefits for the rest of the economy,
stands as a prime example. For a discussion of this case, and the lessons learnt, see Bradford L. Barham &
Oliver T. Coomes, Prosperity’s Promise: The Amazon Rubber Boom and Distorted Economic Development
(Westview Press, 1996).
36. The issue of insertion in global value chains places the national development process firmly within the setting
of global industrial processes, which is where it properly belongs. The literature on value chains itself has
featured an interesting evolution from an early emphasis of production and commodity chains as an
expression of underdevelopment (see Gary Gereffi, ‘Contending Paradigms for Cross-Regional Comparison:
Development Strategies and Commodity Chains in East Asia and Latin America’, in Peter H. Smith (ed.),
Latin America in Comparative Perspective: New Approaches to Methods and Analysis (Westview Press,
1995)) to value chains as a source of potential technology upgrading and integration (see Bair & Gereffi,
‘Local Clusters in Global Chains’). For a recent overview, see Timothy J. Sturgeon, ‘How Do We Define
Value Chains and Production Networks?’ IDS Bulletin, Vol. 32, No. 3 (2001), pp. 9– 18; and likewise
John Humphrey & Hubert Schmitz, ‘How Does Insertion in Global Value Chains Affect Upgrading in Indus-
trial Clusters?’ Regional Studies, Vol. 9 (2002), pp. 1017–27. For an up to date overview on global value
chains, see the IDS webpage: www.ids.ac.uk/valuechains.
37. This is not to say that the process will always succeed; in fact it is more a case of surprise accompanying
success. For unsuccessful efforts by Taiwan to enter the Hard Disk Drive (HDD) industry, for example,
see David G. McKendrick, Richard F. Doner & Stephan Haggard, From Silicon Valley to Singapore:
Location and Competitive Advantage in the Hard Disk Drive Industry (Stanford University Press, 2000).
But this case is interesting because failure in the HDD industry was followed by success in the optical
disk drive industry, such as in CD-ROMs.
38. As new sectors are successfully established, so they create new growth poles, or clusters, where the key to
development is the identification of ‘gaps’ that need to be filled, and ‘inputs’ that need to be replaced by local
initiative. This is an endless process that the Taiwanese describe as ‘import replacement’ but which would
more accurately be described as ‘gap-filling’ and ‘input-replacing’ collective entrepreneurship – to use the
suggestive language of Harvey Leibenstein, ‘Entrepreneurship and Development’, American Economic
Review, Vol. 58, No. 2 (1968), pp. 72– 83.
39. The barriers placed in the way of enterprise formation and entrepreneurial initiatives by developing countries
through various kinds of bureaucratic impediments are now legion. These appear to be a product of arrested
development; they are not found in the performance-focused success cases of East Asia. For an insightful
discussion of such barriers, see Hernando De Soto, The Mystery of Capital: Why Capitalism Triumphs in
the West and Fails Everywhere Else (Basic Books, 2000).
40. Dahmén developed his ideas concerning development blocks during his studies of the Swedish economy, in
the 1950s; for a later elaboration, see Erik Dahmén, ‘Development Blocks in Industrial Economics’, in
B. Carlsson (ed.), Industrial Dynamics (Kluwer Academic, 1989).
41. For an informed discussion of upgrading strategies in Taiwan where a judicious blend of IS and EO is empha-
sised, see Alice H. Amsden & Wan-wen Chu, Beyond Late Development: Taiwan’s Upgrading Policies (MIT
Press, 2002).
42. For positive and negative examples of these processes, see Sanjaya Lall, Learning to Industrialize: The
Acquisition of Technological Capability by India (Macmillan, 1997); Sanjaya Lall & Carlo Pietrobelli,
Failing to Compete: Technology Development and Technology Systems in Africa (Edward Elgar, 2002);
John A. Mathews, ‘National Systems of Economic Learning: the Case of Technology Diffusion Management
in East Asia’, International Journal of Technology Management, Vol. 22, No. 5/6 (2001), pp. 455– 79; and

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 Catch-up Strategies in Industrial Development
John A. Mathews, ‘Understanding the “how to” of technological change: The case of electronics in Taiwan’,
MGSM Working Paper 2004-21, Macquarie Graduate School of Management, Sydney, 2004.
43. Development blocs, growth poles and industrial clusters are all expressions of the unbalanced trajectory that
development necessarily takes. They are concepts that have no place in the tidy conceptual universe of the
neoclassical economic synthesis, which is a victory of deductive economic logic over historical, empirical
and inductive reasoning from example.
44. On such MNCs from developing countries, see for example John A. Mathews, Dragon Multinational: A New
Model of Global Growth (Oxford University Press, 2002), and John A. Mathews, ‘Dragon Multinationals:
New Players in 21st Century Globalization’, Asia Pacific Journal of Management, Vol. 23 (2006), pp. 5–
27), where the terminology ‘Dragon MNEs’ is utilised. Globalisation has ushered in a set of opportunities
where such MNEs can accelerate their internationalisation; they are ‘Second wave’ MNEs as opposed to
the First wave MNEs from the Third World that had to struggle to internationalise.
45. Institutions involving intellectual property protection will have to be created, for example, and firms will
have to pay more attention to patenting as a means of building competitive advantage; for an overview of
the East Asian experience, and the creation of East Asian ‘innovative capacity’, see Mei-Chih Hu & John
A. Mathews, ‘National Innovative Capacity in East Asia’, Research Policy, Vol. 34 (2005), pp. 1322–49.
46. Latecomers will recognise that industrial development is a decades-long process that will require the inputs
of many agencies, firms and individuals, but a sense of purpose needs to be maintained through this changing
cast of participants, and this is best secured through institutional continuity and through generating a clear
national ideology grounded in development. As Gerschenkron noted, the later the country comes to its deve-
lopment task, the more powerful has to be its ideology of development to act as cohesive force ensuring that
policies pursued across disparate domains, such as housing, transport or infrastructure, are consistent with
catch-up development goals. In this sense, institutions are the weapon of the latecomer.

335

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